Make Good: Why the Bill Is Not What the Landlord Lost

In Tabcorp Holdings v Bowen Investments the tenant altered the foyer of a leased building without the landlord’s consent. Two numbers came out of the litigation. The landlord’s building was worth $34,820 less than it would have been. Putting the foyer back cost $580,000, plus around $800,000 of rent lost while the work was done.

The High Court awarded the cost of putting it back.

That gap — roughly seventeen to one — is the single most important thing a departing tenant can understand about make good. The sum at the end of a lease is not a valuation of what the landlord lost. It is, as a starting point, the cost of the works.

What the clause actually asks for

Make-good clauses in Australia cluster around two drafting positions, and they produce very different bills.

The harder one returns the premises to base-building condition: the tenant strips out everything, repaints, and hands back services to the building’s original specification. Partitions, floor coverings, supplementary air conditioning, data cabling and any ceiling or lighting changes all go.

The softer one asks the tenant to remove only its own fit-out and make good the damage that removal causes. Anything that was there at handover stays. On a tenancy that inherited a fit-out from the previous occupant, the difference between these two readings can be the entire cost of the job.

Which one applies is a question of drafting, not of custom. The phrase “make good” has no fixed meaning that overrides the words actually used, and clauses that sound similar in a summary routinely differ on the point that matters: whether the benchmark is the premises as they were at the start of this lease, or the building as the landlord originally built it.

How the sum is measured

The default at common law is the cost of reinstatement, not the landlord’s loss in value.

That follows from the ruling principle in Robinson v Harman and Bellgrove v Eldridge — damages put the innocent party in the position performance would have produced — and it is what Tabcorp applied. The diminution in the value of the landlord’s reversion, the $34,820, was not the measure. The cost of the works was.

There is a brake on it. Where the cost of reinstatement is out of all proportion to the benefit obtained, courts have declined to award it, following the reasoning in Ruxley. But “out of all proportion” is a high bar, and a seventeen-fold gap did not reach it in Tabcorp. A tenant hoping the disproportion argument will rescue an expensive strip-out is usually hoping too hard.

The exception that changes the answer in New South Wales

For covenants to repair specifically, New South Wales imposes a statutory cap. Section 133A of the Conveyancing Act 1919 reaches covenants “to keep or put premises in repair during the currency of a lease, or to leave or put premises in repair at the termination of a lease” — the end-of-lease case precisely — and provides that damages “shall in no case exceed” the amount by which the value of the landlord’s reversion is diminished. It goes further: no damages at all are recoverable where the premises would, at or shortly after termination, have been pulled down or structurally altered so as to render the repairs valueless. It mirrors s 18(1) of the English Landlord and Tenant Act 1927.

So the measure depends on how the obligation is characterised. A covenant to repair in New South Wales is capped by the diminution in the reversion. A covenant to reinstate or remove is not obviously a repairing covenant at all, and the common law measure — cost — applies to it. The same end-of-lease negotiation can therefore turn on which limb of the clause the landlord is suing under, and whether the building is about to be refurbished anyway.

That last point is worth dwelling on. If a landlord intends to gut the floor for the next tenant, the works the outgoing tenant is being asked to pay for may be about to be demolished. Under s 133A in New South Wales that defeats a repair claim outright. Elsewhere it is an argument about proportionality rather than a statutory answer, but it is the same commercial observation: nobody should pay to restore a ceiling grid that is coming down in March.

Retail leases: regulated, not prohibited

No Australian retail tenancy Act bans make good. They regulate how it can be imposed.

In New South Wales, s 38 of the Retail Leases Act 1994 makes a clause requiring the tenant to refurbish or refit void unless it gives the details necessary to indicate generally its nature, extent and timing. A clause that simply obliges a tenant to “refurbish as reasonably required by the landlord” does not survive that test. The disclosure statement reinforces it: item 31 of Schedule 2 asks, in terms, whether the tenant is required to make good the premises at the end of the lease — a question the landlord must answer before the lease is signed.

Victoria takes the same approach at s 58 of the Retail Leases Act 2003.

The practical consequence is that in retail premises the scope should have been settled at the start of the lease, in writing, with enough specificity to be enforceable. Where it was not, the tenant’s position at the end is considerably stronger than it looks.

Where the numbers come from

Two different professionals produce the two different numbers, and conflating them is how make-good negotiations stall.

A quantity surveyor prices the works: a scope derived from the clause, measured against the condition of the premises, costed at current rates. That is the number that answers “what would it cost to do what the lease requires”.

A valuer answers the other question — what the landlord’s reversion is actually worth with the fit-out in place versus reinstated. That is a before-and-after assessment, and it is the number that matters wherever the measure is diminution rather than cost: a New South Wales repair claim, a disproportionality argument, or any negotiation where the landlord’s real loss is the honest basis for settling.

Timing follows the lease, not the dispute:

• At signing, the obligation is a liability to be recognised. Where it is probable and can be reliably estimated, AASB 137 treats it as a provision — which means the number should exist in the tenant’s accounts years before anyone is arguing about it.
• Six to twelve months before expiry is when a dilapidations report earns its cost. Scope agreed early is scope negotiated calmly; scope agreed in the last fortnight is scope agreed under a holdover rent.
• At expiry, the figure is finalised against the condition actually handed back.

A tenant who first reads the make-good clause in the final month of a ten-year lease has given up every lever the clause allowed them.

Frequently asked questions

Is make good measured by the cost of the works or the landlord’s loss?

The common law starting point is the cost of reinstatement, which Tabcorp Holdings v Bowen Investments confirmed by awarding $580,000 of works against a $34,820 diminution in value. The cost measure can be displaced where it is out of all proportion to the benefit, and in New South Wales damages for breach of a repairing covenant are capped by s 133A of the Conveyancing Act 1919 at the diminution in the landlord’s reversion.

Do I have to return the premises to base-building condition?

Only if the clause says so. Some clauses require a full strip-out back to the building’s original specification; others require only the removal of the tenant’s own fit-out and the repair of damage caused by removing it. The difference can be the whole cost of the job, and it is decided by the drafting rather than by what is customary.

Can a retail landlord simply require refurbishment?

Not in New South Wales or Victoria. Section 38 of the Retail Leases Act 1994 (NSW) and s 58 of the Retail Leases Act 2003 (Vic) make a refurbishment or refitting clause void unless it gives the details necessary to indicate generally its nature, extent and timing. The NSW disclosure statement also requires the landlord to state, before signing, whether make good will be required.

When should I get a make-good assessment?

Six to twelve months before expiry at the latest, so the scope can be agreed before holdover rent starts applying pressure. The obligation itself should have been quantified much earlier — under AASB 137 it is a provision to be recognised when it becomes probable and reliably estimable, not a surprise at the end of the term.

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Sources:

• Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8
• Conveyancing Act 1919 (NSW), s 133A
• Retail Leases Act 1994 (NSW), s 38
• Retail Leases Act 2003 (Vic), s 58
• AASB 137 Provisions, Contingent Liabilities and Contingent Assets

General information about end-of-lease make-good obligations as they bear on valuation. Not legal advice, and not a substitute for reading your own lease — the measure of any claim turns on the words of the clause, the jurisdiction and the landlord’s intentions for the premises. Confirm your position with your solicitor. Last verified 6 October 2026.

See also: Commercial Property Valuation · Commercial Rent Review Explained · Retail Valuation · Industrial Valuation · How Commercial Property Is Valued